THE THIRD RAIL OF U.S. POLITICS

As Newt Gingrich tries to buzz saw more than $1 trillion out of federal budgets in the next seven years, Republicans are pressed to go where the money is. And there’s big money in Medicare. Last year it weighed in at $162.5 billion and is expected to grow to $286 billion by the year 2000. However, previous attempts to tinker with the health insurance enjoyed by 36.3 million aging voters have earned Medicare the title of “the third rail of American politics.” Touch it and you’re dead.

It is a tantalizing–but daunting–target. According to recent estimates, the Republicans can achieve their promised reductions if they hold back the projected growth of Medicare by 18% to 31%. “Some days I think this is too much change to try to get through,” says Gail Wilensky, the Bush Administration’s Medicare chief and now a top adviser to congressional Republicans. Nevertheless, everyone agrees that reform must be carried out soon. One of Medicare’s two divisions–the one that pays for hospital visits– is running 23% ahead of revenues and is projected to go bankrupt in six years.

Congress’s old approach of cutting government fees paid to doctors and hospitals won’t fly if it just results in passing on charges to–and inflating the bills of–other patients and insurance companies. Republicans will have to find creative ways to curb Medicare without delaying the retirement plans of the baby-boomer generation, whose first members turn 50 next year.

One proposal is to go after the so-called “greedy geezers.” All seniors, rich or poor, are provided hospital coverage with modest deductibles and–for $46.10 a month–nearly all purchase a supplemental plan that helps pay the cost of visits to the doctor. The richest in this group, argue the reformers, should be made to pay higher premiums and larger deductibiles. But it turns out there are relatively few “greedy geezers” to be gouged. Nearly 80% of all Medicare benefits go to households with annual incomes less than $25,000. Another Republican proposal would simply impose a cap, a fixed percentage, on the growth of Medicare’s budget. But opponents claim this would threaten vulnerable hospitals in inner cities and rural areas, while creating chaos in a program destined to grow larger from the addition of aging baby boomers.

With few alternatives in sight, Republicans are borrowing one idea from Clinton: managed competition. Currently, 90% of all Medicare patients go to “fee-for-service” doctors and hospitals. The more they charge, the more Medicare pays. There is no incentive to reduce costs. But costs could be cut if Medicare patients are coaxed into health-maintenance organizations (HMOs), where a single payment provides for all of a patient’s needs.

Some experts worry that HMOs could become black holes, in which competition sucks down the quality of care, putting it beyond public scrutiny and accountability. Still, a major study conducted for the government concluded that requiring Medicare recipients to use HMOs could reduce the government’s costs as much as 10%. Perhaps, suggest some, even greater savings might be possible if HMOs were competing for large numbers of Medicare patients. And as consumers make smart purchases, the marketplace would naturally produce greater efficiency at less cost. That kind of scenario gives people like Wilensky hope. “This is the best kind of public- sector health-care reform I can think of,” she says. Daring not speak the words managed competition, Republicans like to say this plan will “turn the market loose.”

–By Dick Thompson/Washington